Asked by Hadeel Damra on Jul 03, 2024

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Consider the following information: original investment = $1,900,PV of CCA tax shield = $1,000,PV of after-tax lease payments = $900.What is the NAL?

A) $2,550
B) $1,650
C) $0.00
D) -$350

PV Of CCA Tax Shield

The present value of the reduction in taxes payable by a firm due to the depreciation expenses claimed on its capital assets.

PV Of After-Tax Lease Payments

The present value of lease payments after accounting for taxes, used to evaluate the financial cost or benefit of leasing.

Original Investment

The initial amount of money put into a project, asset, or venture.

  • Evaluate the Net Profit of Leasing (NAL) under precise operational and financial scenarios.
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TZ
Tommy ZhengJul 07, 2024
Final Answer :
C
Explanation :
NAL (Net Advantage to Leasing) is calculated as the present value of lease payments minus the present value of tax shield from CCA minus the original investment.
Therefore, NAL = $900 - $1,000 - $1,900 = -$1,100.
Since NAL is negative, the best choice is not to lease. Thus, option C is the only correct choice.